Are You Your Credit Score?

In the late 1960s and early 1970s there were a number of books and films that showed people living in a dystopian world in which what made them individuals and human was gone, and the depersonalized world they inhabited only cared about their economic role in society. We were no longer people to powers running those societies, but just a number. The George Lucas film THX1138is a good example of this genre of film. Watching one of those films today they come across as dated, as if viewing the contents of a time capsule that reveals the interests and anxieties of another time long ago.

Almost all of the paranoia about “the man” taking over our humanity that fueled art from that time is gone from our society today. But one thing that has remained is that idea about a number. We’re not stamped with a number for our name like the character THX1138 was, instead we have another number associated with us that is very important to our economic lives: our credit score!

Here a list of just some of the many places that use your credit score to evaluate you:

Banks

Credit Card Companies

Financing Companies

Credit Unions

Mortgage Lenders

Landlords

Cell phone companies

Utility companies

Potential Employers

Our credit score, our number, obviously has a huge impact on our economic lives and to some extent the overall quality of our life. A higher credit score could mean getting a better job, qualifying for a larger mortgage – so a better home, and better finance rates – so you get to keep more of your own money.

Unlike the character THX1138 in the movie, though, our number, our credit score, isn’t fixed to us for life. We can change and improve our credit score. But it’s not all together easy, usually takes a little time, and might be beneficial to have the help of the professional to aid you.

So if it’s so important in our lives, how do we improve our credit score? If you find your score is below where you’d like it to be there are really two main areas to focus on. First, fix any errors there may be on your credit reports. Second, begin to implement good personal finance practices. And actually you don’t need to wait to start the second one, it would be best to start them both at the same time.

Fixing The Errors On Your Credit Reports

It’s a little known fact, but it’s been estimated that up to 20% of all credit reports have at least one error, which could potentially have a negative impact on your credit score. If there are any errors on your credit reports this is a great place to start when looking to increase your credit score.

At a high level, removing errors is simply a matter of finding them on your credit report and disputing them to have them removed. Though that sounds relatively easy and straightforward, the actual practice can be a little involved. You first have to order your credit reports from all three credit agencies, evaluate them to determine what should/shouldn’t be disputed, pull together your dispute communication and send it to the agencies, then wait and based on their response determine your next steps. It takes learning a new process, energy, organization, and time. It should be considered a kind of personal project if you’re to undertake the credit repair process yourself.

The alternative would be to work with a professional credit repair agency, which will pretty much do all the work for you.

Good Personal Finance Practices

The other part of the equation is to implement good personal finance practices in your day-to-day life. There are really four main areas in personal finance that you should follow to increase your credit score.

Pay Bills On time

The most important factor in having a high credit score is having a history of paying your bills on time. And this makes sense – potential creditors will want to know if they were to extend you credit, will you pay them back within the agreed upon time. For this one, they do want to see a history of good, on time payments to all of your creditors – so understand it will take a little time to establish, but start now!

Pay Down Your Debt

Another important factor in determining your credit score is not carrying a lot of personal debt. The credit score and creditors assume if you have too much debt you’re at a higher risk for not being able to pay them back – especially if something happens to you like losing your job. So if you do have debt on your credit cards or through personal loans, develop a plan to pay that off as soon as you can and stick to it. It will put you in a better position in terms of your own personal finances, and will have a big impact on improving your credit score.

Keep Your Old Credit Cards

Sometimes when we are on a program to improve our personal finances we look to get rid of old credit cards we thing we no longer need. The impulse is a good one, but unfortunately having those old credit cards is seen as a positive thing when it comes to your credit score. It shows that you’ve had and maintained the use of credit effectively over a longer period of time in the past, and that it is more likely you’ll be able to do it again in the future.

Avoid Applying For New Credit

This one doesn’t have as much impact as the others, but it is a factor that will affect your credit score so you have to keep it in mind. The way credit scores are calculated and how creditors look at new credit is that this represents a greater risk for them. This is especially true if someone is opening a number of new accounts at the same time, or is new to the use of credit. To ensure this isn’t a factor that hurts your credit score, hold off on opening any new credit accounts unless it’s absolutely necessary.

Your Credit Score

Your credit score obviously is not as ominous as some of those old movies used to depict the use of numbers to represent us. It is a number that’s used to represent a part of our financial lives. But like other numbers that represent other parts of our life – our weight, our cholesterol, or our blood pressure – we can improve it over time with the right practices.